McGraw Hill Construction Predicts Moderate Growth in 2014

According to the recently released 2014 Dodge Construction Outlook report, presented by Robert Murray, McGraw Hill Construction’s vice president of economic affairs, Friday in Washington D.C., the construction industry will see modest gains in the coming year. Overall, Murray forecasts that U.S. construction starts will rise 9 percent for $555.3 billion, topping the 5-percent increase of $508 billion seen in 2013.

Murray was cautious when delivering the data, however. “I think the way 2013 has turned out has some positive news, but also some negative as well,” he says.

“Some people are saying yes, they are seeing definite signs of growth … but I’ve also heard comments that we aren’t seeing any signs of upturn. It’s turning out to be subdued and selective,” Murray adds. “The question we have is: ‘is this a lost decade for construction?’”

While Murray certainly displayed caution when announcing the report, the results showed slight optimism in the growth of the industry throughout 2014.

Single-family housing may prove to be the construction industry’s darling, with a projected 26-percent growth in dollars and a 24-percent increase in units. Despite this projected growth, the report shows the industry is not yet back to stable numbers.

“While the 2014 level of activity is up 90 percent from the 2011 trough of 413,000 units, it remains less than half the bubble-induced 2005 peak of 1.626 million units,” reads the outlook report. “And while the market is not expected to return to the 2005 peak any time soon, the 2014 level also remains well below the decade average for every decade in the McGraw Hill Construction starts database.”

McGraw Hill does warn that despite saying the single-family starts are on the right track for recovery, “the demand for housing will continue to be restrained by careful bank lending practices towards issuing mortgages.”

Multifamily housing, while still poised to grow at 11 percent in dollars, will see a much more modest gain than it has in past years. Units are expected to increase 9 percent. “While starts are not expected to return to 2005’s bubble-induced level, the fact that 2012 starts were 30 percent below the previous decade’s average is an indication that further growth is needed to return this market to a normal level of activity,” according to the outlook.

Further, commercial building is anticipated to increase at a rate of 17 percent in dollars, which is up from 2013’s estimated 15-percent gain.

“The positives for commercial building are improving market fundamentals and more bank lending for commercial development,” says McGraw Hill. “Next year’s activity in dollar terms will still be 28 percent below the 2007 peak.”

Institutional building will also increase 2 percent following five years of decline.

“The 2014 picture bears some similarity to what’s taking place during 2013, with single-family housing providing much of the upward push; multifamily housing showing a slower yet still healthy rate of growth after four years of expansion, and commercial building gradually ascending from low levels,” says Murray. “One change that’s expected for 2014 is that institutional building will no longer be pulling down nonresidential building and total construction.

“One of the frustrating things is we thought finally the situation is lifting,” he adds. “It seemed that 2013, although slow, you didn’t have that level of uncertainty, but the government shutdown has brought back that uncertainty … at least in the near term going forward. We’ll see what happens in January and February.”

Murray quickly notes that overall, “I think it’s turning positive … not a boom situation, but something that suggests the modest increases we’ve seen to date can be sustained into 2014 and beyond.”

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